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Expert opinion

The moment is now for pay later

Thursday 27 September 2018 | 08:52 AM CET

Luke Griffiths, General Manager at Klarna UK, shares how the Pay later solution can be increasingly beneficial for the retail industry

These days, online shoppers have more payment options to choose from during the checkout, alongside the usual card options. Klarna’s Pay later - which has been adopted by the likes of ASOS, Arcadia Group and JD Sports - lets customers pay for their items up to 30 days after they’ve received their delivery.

Pay later is our flagship product here at Klarna. By introducing this option to the UK market, we’ve helped fix one of the age-old problems around online shopping: customers not wanting to part with their money until they’re sure the goods are as described and right for them. That makes Pay later really beneficial for consumers, who are able to try before they buy, and don’t face the cash flow issues of having to wait for items they’ve returned, to be refunded. In turn, merchants benefit from increased sales, greater customer loyalty and competitive differentiation.

In fact, with Klarna’s Pay later, retailers have been able to increase average basket size by 20% and basket value by 15%. Pay later has also been proven to improve shopper purchase frequency by 15%. But let’s dive deeper into why Pay later is such a popular choice for consumers - why do shoppers love it?

Emotional ecommerce

As the online shopping industry has developed, retailers have had to become increasingly attuned to customers’ needs to stay ahead. Unsurprisingly, there’s a huge amount of psychological and emotional factors at play in the average consumer’s shopping journey. Research we conducted with Reading University showed the traditional linear customer journey is now more akin to a rollercoaster, marked by highs and lows of emotion. This is especially true of millennials, who make up the largest percentage of online shoppers.

Separately, consumer research we conducted showed that two thirds (68%) of millennials reported feeling excited when adding items to their online basket, compared to less than a quarter (24%) of people over 55.

The flip side of this excitement is lows caused by anxiety and guilt, with 52% of millennials saying they worry that they can’t afford the purchase during checkout. One in five millennials has abandoned a purchase due to worries that they will regret it later.

Solutions like Pay later are the perfect antidote to these cold feet - with 20% of millennials saying they would feel less guilty if they were offered deferred payment options, and one in five would be more likely to complete a purchase if they knew they could spread the cost over time. It’s vital that merchants offer these choices at the checkout, so shoppers can be reassured a transaction is achievable and risk-free.

The domino effect

A second important factor to consider when looking at the growth of Pay later is the sector in which it is most popular - fashion. The retail sector is notoriously competitive, and consumers are increasingly fickle. Shoppers have many options to choose from, so if they’re not getting an optimised service or user experience from one merchant, they will simply go elsewhere.

That’s why retailers need to keep a close eye on what their compe titors are doing, and what their customers want. By letting shoppers turn their sitting rooms into fitting rooms retailers put the customer in control and ulti mately create a deeper brand relationship. And once one merchant sees that Pay later yields big dividends, it creates a domino effect - with other retailers integrating the same service to avoid falling behind. When it comes to retail innovation, fortune favours first-movers.

A payments revolution

Finally, it’s also worth taking note of the wider financial context in which Pay later is being used. The past decade has seen huge innovation in the payments sector, largely driven by new technology and players who have turned the financial services industry on its head. 

Ten years ago, consumers were limited to cash and cards, most of which were provided by the Big Four. Fast forward to today, and we have more choice than ever before: from contactless to cryptocurrencies, and everything in between. UK consumers have been especially open and quick to adopt these new methods - particularly when compared to other European markets like Germany or Italy. So it’s not surprising that solutions like Klarna’s Pay later have been well-received, and have been added to the consumers’ payments arsenal.

However, there’s still work to do. Payment is still a sticking point for many consumers, and emotional factors can cause hesitation at the checkout - perhaps the most important step in the online customer journey. Offering a fast and convenient checkout with flexible payment options is key to winning sales and customer loyalty.

About Luke Griffiths

Luke Griffiths heads up the UK division of Klarna, where he oversees Klarna’s expansion in the market by introducing innovative products - such as Pay later - which simplify the payments process. With over 15 years’ experience in management and digital marketing, Luke previously held roles at eBay and Wyndham Worldwide. He also has extensive international experience, building and growing businesses across the EMEA region.

About Klarna

It’s all about smoooth (yes, with 3 ooo’s). Klarna is Europe’s leading payments provider and a newly-licensed bank, which wants to smooothen the payment experience by giving shoppers the option to pay now, pay later or over time. Klarna works with 89,000 merchants, including ASOS, Topshop and JD Sports in the UK, across Europe and North America.

This editorial was first published in our Payment Methods Report 2018 – Innovations in the Way We Pay. The Payment Methods Report 2018 presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.

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